Fiona O'Malley (Dún Laoghaire, Progressive Democrats)

I welcome the opportunity to discuss this energy policy. No public representative can remain unconcerned about the rate of increase in the price of electricity and gas recently granted by the energy regulator. The cost of energy is increasingly an issue of significant concern to manufacturing industries here.

As a minute and isolated energy market, Ireland was never going to enjoy the security and price benefits which economies of scale can provide to countries on mainland Europe that are well connected to the European grid. Equally, as a market representing 1% of the European electricity market, it is questionable whether the EU directive on liberalisation should have been interpreted by our regulator quite so strictly. A strong case for derogation could and should have been made.

While electricity price increases in Ireland were suppressed for many years, recently prices have increased substantially. Our industrial electricity costs are now the highest in the European Union and are a major threat to competitiveness and, as a joint committee has heard, the survival of many industries. Furthermore, the rate of increase of Irish electricity costs is unparalleled in the European Union, as may be seen from data produced by the Irish Academy of Engineering, which shows that in the period 1999 to 2005 electricity prices here increased by 50% but declined marginally in the European Union as a whole.

The Deloitte & Touche report into the Irish electricity market points specifically to two issues which affect our electricity costs, namely, our fuel mix and the operation costs of ESB generating plants. We are inordinately dependent on imported oil and gas and therefore subject to the vagaries of geopolitical circumstance. While international oil and gas prices are currently declining, the long-term price trajectory is upward. Rather than tinker with short-term solutions, we need a rigorous rehaul of our energy market. We need to provide long-term solutions which will safeguard industrial competitiveness and ensure a reasonable price for the domestic user.

The necessity to develop an indigenous supply through the flow of Corrib gas is compelling and a matter of supreme national importance. As the Deloitte & Touche report points out on page 38, a way to protect against our perilous oil and gas exposure is to ensure the extraction of this valuable resource with all haste. I pay tribute to the current Minister's handling of this issue and support his unequivocal stand on the Shell to Sea evolving shopping list. Anyone with an interest in Ireland's sustainable energy future would support the Minister in getting the gas to the market.

While the rapid increase in prices was attributed to increasing fuel costs, an examination of the ESB's regulatory accounts indicates that other factors are equally significant. These include the considerable increase in the ESB's operating and maintenance costs over the period 2002-04 from €480 million to €799 million, an increase of almost 70% over two years. The regulator should have been more vigilant and not allowed these cost increases.

The other factor contributing to price increases is the rapid increase in profits within the ESB's monopoly business areas, the transmission and distribution of the public electricity supply, from €215 million to €235 million before interest in one calendar year. As it is now accepted the ESB's monopoly business will not be privatised in the foreseeable future, there is no economic argument for retaining profits at current levels. Electricity prices could be reduced by up to 10% in the near term if the Minister issued a direction to the CER to regulate these businesses on a not-for-profit basis. This would have the added advantage of forcing the ESB to address its acknowledged excessively high power station cost base and generate a more appropriate level of profits from the business areas open to competition. Whether the regulator has been appropriately prudent in permitting the rate of capital investment which he has permitted over recent years is questionable. The easiest way for the ESB to generate profits is to increase capital investment.

The two main energy providers, the ESB and Bord Gáis Éireann, by virtue of the State's historic investment and support, contain key infrastructural assets. Why have commercial rates of return criteria been applied to these assets? Would the country and the economy not be better served by the setting of a regulatory model which would ensure the ESB and Bord Gáis Éireann are capable of meeting all their third party debt service obligations and that they retain some of the funds for extending electricity and the gas grid where appropriate, thereby avoiding both companies making combined profits in excess of €400 million, part of which is paid back to the Exchequer? Reducing the rates of return awarded to Bord Gáis Éireann and the ESB would not impact on their ability to pay their third party debts or extend the gas grid, but would significantly reduce the cost of energy for industry. The management of both companies could be accused of operating as utilities in search of privatisation and this has resulted in unnecessarily high prices for consumers.

The Deloitte & Touche report found inefficiencies in operation and maintenance of the ESB generating plant gave rise to costs in the order of €100 million. These costs relate to availability of the plant, how regularly it can generate electricity and average wage costs. Inefficiencies at Poolbeg were particularly stark. There the report found 67% availability and an average wage cost of €122,000. It is no wonder €100 million could have been saved. Business as usual cannot continue to apply in our State energy monopolies.

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